Sprint Shares Slip on Warning, CEO Departure

Sprint Nextel shares fell Tuesday a day after the No. 3 U.S. mobile-phone service warned it would not meet 2007 financial targets and said its chief executive had stepped down.

The news also helped push down shares of Motorola , a key supplier of handsets and network equipment to Sprint, more than 2 percent, as investors bet that a new CEO might make strategy or technology changes.

Bond rating agency Standard & Poor's said on Tuesday it may cut its rating on the wireless carrier, although the company is expected to maintain its investment grade. S&P rates Sprint "BBB," the second-lowest investment grade rating.

Sprint had come under pressure from investors to turn the business around after a year of slow growth and the loss of valuable postpaid customers who pay monthly bills. Sprint shares dropped about 4 percent Tuesday before recovering most of those losses in the afternoon.

Stifel Nicolaus analyst Chris King downgraded the stock to a "sell" rating from "hold" after the news, saying Sprint would not likely recover any time soon.

King said he was materially lowering his profit and revenue estimates for Sprint for 2008, adding it would be "a transition year for a new CEO," who would have to deal with slowing market growth "and little opportunity for a significant operational turnaround until late in 2008, at the earliest.

"We see few catalysts that could drive higher multiples or improved operational results over the next 12-18 months," King said in a note to clients.

Sprint said late on Monday that it had lost customers in the third quarter that just ended and its 2007 revenue and operating income before depreciation, amortization, restructuring and asset impairments, and special items (adjusted OIBDA) would fall short of its target.

Sprint's stock has lost about one-third of its value in the last 18 months, was down 42 cents, or 2.3 percent, at $18.15 in late morning trade.

Sprint spokeswoman Leigh Horner said former CEO Gary Forsee would not be available for interview. She said the company's recruitment firm Spencer Stuart was looking at candidates outside the company but did not give further details.

Aside from supplying handsets and equipment for Sprint's existing services Motorola also agreed to deliver equipment for a network that Sprint plans to build based on an emerging wireless technology known as WiMax.

Some investors criticized Sprint's bet on the largely unproven technology. As a result RBC analyst Mark Sue said Motorola investors worried Forsee's successor would scrap the project.

"Motorola made a bet with Sprint for WiMax and the new (Sprint CEO) may make some changes," Sue said.